All right, take two. Melody, welcome back to the show.
Thank you so much. Thank you for having me. It's my pleasure to be here.
Well, like I said, it's timely talking to you as somebody settling on a house next week.
May not be the best market to do it, but I got to get my forever house.
And for anybody who didn't catch the first interview with Melody in Q3, beginning of Q4,
last year, just a little background. Melody's a housing market analyst and independent researcher.
She's based in Tennessee.
She runs the M3 underscore Melody sub stack, which is great.
I highly recommend subscribing to it if you want to stay up to date on this.
She's doing deep dive analysis on housing data, labor markets, and the intersection of government policy with real estate.
Former mortgage industry professional who now does investigative field reporting, literally visiting homeless camps, detention centers, and distressed neighborhoods to ground truth the data she studies, collaborating with other researchers.
and getting data from FRED, NAR, Census, and county-level records.
And like I said, I think your most recent newsletter that you dropped last week
talking about home sales in December, the retail credit situation,
and the stress the consumer is under is something that many people are not aware of
because we're being told that the economy is running hot.
it's the best economy ever, but if you look under the hood, things are not all well from
your perspective. So what are you seeing out there, Melody? Yeah, no, I think you summed it up nicely.
I mean, you know, we've been seeing this under the covers trouble for some time, especially in
what I'll call government subprime FHA. You know, when those student loans started reporting to
credit again, it really impacted a lot of the people who should be forming households. And so
you had people going from 750 credit scores to 550. And so very quickly, you know, credit got cut off
at the same time, you know, in the mortgage market specifically, guardrails went on the FHA program,
which were being taken advantage of. A lot of fraudsters were taking advantage of it, but
essentially you could just keep not paying over and over and you would go get another workout and
another workout. And so guard whales went on that program. So, um, you could, when we look at stuff
in the aggregate, Marty, I think this is where everybody, you know, can have that false sense of
calm because it looks okay. Like, Oh, you know, home equity, that looks like that's great. Not
unlike the last time people will often say, but there's so much going on that's new that people
don't understand. Like today, for instance, Klarna reported, right? And they had a loss
and they are very much some of the people that use Klarna, buy now, pay later, are the exact
people that would be, that we would hope would be out there buying homes. But unfortunately,
they have to, you know, basically finance their burritos. And so, you know, you look at the use
unemployment rate. I mean, so I guess there are so many things, so much weakness under the surface
that almost no one is paying attention to. And so in all pockets of the market, be it in mortgage,
where you're starting to see delinquency rise, and we're going to see that from here,
you're actually starting to see the prime books get impacted. And they always come after the
subprime, you know, when the layoffs happen. And the issue now is a lot of this lending was made
on inflated credit scores. And that did not include, you know, the student loans and things
like that, or, you know, those eviction moratoriums. And now those inflated credit
scores are coming down with student loans reporting. So it's just a much murkier picture
than what people, and I don't know how anyone can say anything positive. I mean, existing home sales
last year were the worst since 1995, and we've increased population by over 20%. I mean, so,
you know, this market is completely frozen. You had a lot of rage delisters last year
that couldn't get the price they wanted. And so they just took it off the market. But what you've
seen since the recent Bitcoin route, kind of what happened there and the wobbliness in the stock
market is inventory is flying to the markets. It had been coming off, but now it's flying on
non-seasonally. This isn't the time of year you would typically, typically your inventory bottoms
in February. So. Well, I thought it was interesting that you covered the Bitcoin price drop and gold
and silver in this newsletter, because I'm not sure if you caught on to this meme, but I think
Bitcoin is a leading indicator of liquidity, right? It trades 24-7, 365. It's very easy to sell
and get cash. And so if a liquidity crisis is pending, it's one of the first assets to go.
And so that's what we've been talking about in the Bitcoin space with this price drop of 36%,
48% since the highs of late October, early November last year, is that something's got to be wonky in the back of the system from a liquidity perspective.
And I think a lot of the data that you highlighted in your newsletter last week points to this.
I mean, looking at credit card spending in December alone, it looks like people were tapped out of cash and really pulling out the plastic to do their spending around Christmas time.
And then I think it would also be important to really dive into the new home listings and home sales in December because those are some pretty historic lows in terms of what's coming to market, what's actually being sold.
Yeah.
So specifically on the new home side, we're going to get results tomorrow for both November and December.
And we, you know, we've been going off.
We only got October because census is the one who prepares that.
But on the existing home side, I mean, yes, a lot of people wanted to blame the storm,
Marty, but California is our biggest housing market out there.
And the storm came very late in the month.
It was just, I mean, these were just really bad sales, like worse than January 2007, worse
than January 2008.
Right. And, you know, again, the population is much higher. I think there's some things going on, though, that a lot of people don't understand, which is I think that the National Association of Realtors, these listing sites, the MLS, they're losing relevance.
And so I think that we're actually having, there are quite a few transactions that aren't being captured in their statistics because you had a lot of people, they did this back in the 80s too when rates rose, is you had a lot of seller financing because, you know, people couldn't get approved at the higher interest rates.
And so the seller would say, I'll finance this for you.
Those and selling homes.
So some of those, some of the transactions are just not being captured.
A lot of them by the investors as well.
And so, you know, we're just, the housing market has always taken it.
The indicators are very lagged.
The data is not real time because a lot of it to really get accuracy is pulled from county records.
and that is, that can be, there's over 3,000 counties in the country and some of them,
believe it or not, are not on any kind of e-record platform. They're still mailing stuff in. So,
you know, I just say that because all those sales are horrible. I mean, they're just absolutely
horrible. I think we are missing a component of the housing market right now with these private
note actors that are out there transacting, not on the MLS. So I just kind of wanted to state that
because I think people are going to be surprised when they realize how much inventory is out there.
And because I talk to them all the time, they say, well, look, look at what was on the MLS in 2008.
There were 4 million homes and now we only have a million. And I'm like, yeah, but there have been
studies that 50% of transactions aren't like, let's say in Austin weren't handled through the
MLS. So I, we have, we're just, it's a very murky, muddy picture, um, that I hopefully haven't lost
everyone in those details, but, uh, what we are starting to see is median listing price. Uh, so
that's the idea that the median of whatever the listing price was, um, that has now come in
negative year over year for two months in a row. It's now under 400,000 for the first time since
2022. You know, while the builders, on the other hand, for their prices, they have been selling
under the existing home price for almost a full year. In the last cycle, we saw that one month,
one month in June, I think of 2006. And so you've got this, these crazy fundamentals where the new
homes are selling below $400,000, a median price. And then that's not even including the $50,000
of incentives they're putting on top of that. And so we just got builder sentiment and it went down
again as well. So I'm really looking forward to new home sale results tomorrow because it'll give
me a clearer picture. But at this moment, last year was the worst we've had in over 30 years,
which is insane. Yeah. Just anecdotally to confirm one of your theses there, I mean,
the house that I'm buying, we did it off market. So it didn't hit. We're in a neighborhood where
you have a bunch of aging out boomers who want to hand it off to younger families. And
so we're able to do that transaction directly. And I think there's a lot of that going on,
at least where I am. I do too. And then, you know, if you're not pulling from public record,
then no one really knows what the median price is out there. You know, if homes aren't selling
that are, you know, or they're selling, but not being captured in the MLS, then we really have
no idea what is going on out there. But what you can get a sense of, you know, because I track 85
markets is there's price cuts everywhere. They're just not selling those houses. They're just
continuing to do price cuts. And so it's going to be one of those gradually then suddenly things,
when you actually can get someone in the market to buy.
But that's the thing.
There's just nobody left to buy,
and the institutionals are not interested at these price levels.
Well, this comes back to something else you covered in last week's newsletter,
which is non-farm payrolls and the revisions.
And I think that's one thing that always makes me chuckle,
is you get the headline number,
and then nine months, a year later, you get the revisions.
and nothing's as verazie as it was originally reported.
No, and that just seems to be happening on every front, right?
And so I think, you know, just take the new home sales price for a minute.
They shaved almost, they revised five years of history through the COVID
and shaved $30,000 off of the new home price high, okay, peak.
It was at $496.
They revised and said, no, then they didn't tell us why they really tell us why.
But now it was at the peak was 460,000 on the new homes and just five years of what we thought was reality just got wiped out.
And so I that's the limitation, I think, of the data.
And that's why I think you have to go look for yourself.
And you also have to, you know, track nontraditional metrics because there's just we're not getting the full picture out there in any way.
Yeah. Well, sticking on the jobs market, too, I mean, you highlight that there's a bit of a jobs mirage with education and health services carrying the entire labor market.
And we've come to find with health services specifically, it's a lot of that's driven by overt fraud.
Exactly. That's where a lot of those Somalis jobs were.
You know, that's where they sit.
And so what happened after the American Rescue Plan is all this money went out to the municipalities and they created all these programs like housing affordable, daycare programs, whatever.
And they employed a lot of people, theoretically, although I think a lot of it was fraud.
And so that's why you've seen that job growth.
But what's happening now, Marty, is these municipalities have run out of money and it's not coming.
I mean, California is a great example of they are in so much trouble.
Chicago, another example, they don't have any more money to fund these programs and they're
not going to get it from federal.
They might get a little, but they're not going to get enough to sustain them.
And so, you know, we're looking at a bunch of municipalities in crisis, which will impact
those education and health services jobs, which is the only jobs that were created last
year, really.
Yeah.
And if you're not getting a health service or education job, you're getting a second job, which is.
Well, right.
Right.
You know, that's the highest percent of workers holding two part time jobs ever right now.
Yes.
Ever.
In the seriousness, I think it goes back to the 60s.
So, yeah, that's nuts.
It's so two two part time jobs just to make ends meet.
I mean, that's insane.
Yeah.
And then, I mean, we don't want to be too dimmerish here, but we're trying to still exactly what's going on.
And you also mentioned like private credit in last week's newsletter.
And that was actually funny enough.
The FOMC meeting minutes from last month came out earlier this week and private credit was an area that the the board highlighted as something to pay attention to and that is wearing them.
And this is another thing that's not tracked in this space.
Like so. So what you know, you have your old traditional hard money lenders, which would like you don't it's like a personal loan.
but they were very, they were usually regional and they would make you pay a huge down payment or
an exorbitant interest rate to kind of cover their risk. What private credit did
is they came in and when they thought they're sophisticated underwriting models, they weren't
that sophisticated. They just went off the credit score basically. And so I've talked to people in
this space that are freaking out because they know those credit scores were inflated. I mean,
look at Klarna today. Like that, that is, we knew this was coming, uh, uh, because we knew that the
numbers they were reporting for delinquency did not add up, but yeah. And so you've got a ton of
private credit out there and the banks have lent to, um, you know, people like Tricolor and, and
those actors who have gone out and lent money and they're not recording deeds. Uh, so we don't know
If there's money lent against the house and they're also many of them aren't reporting to credit, you know, and so it's just a big and we know that the shadow market is about two and a half times bigger than it was during the last crisis.
Yeah. I saw a headline yesterday about subprime auto loan delinquency rates skyrocketing and obviously 90 plus day delinquency rates on real estate arising as well.
And I'm just wondering how much of that is due to the immigration policy of the last year and how many immigrants that were here illegally but were able to get FHA loans and subprime auto loans simply had to leave the country, which is driving that up.
But regardless, there's still no one can really track that.
You know, I've been trying to get good data on that, but there's just not really good data.
Yeah. Well, you're talking about the 90 plus day delinquency rates in real estate specifically.
And there's some sort of foreclosure game going on.
Oh, the sub two.
Yeah, I'll talk about. So I'll talk about what's going on in delinquency.
So basically, when the guardrails went on that FHA loss mitigation program, which was just basically an open till to whoever wanted to come take advantage of it, that meant that we were going to see serious delinquency increase because they are no longer eligible for some of these workouts or they have to do things like make a trial payment.
So let me give you, I have one borrower and one of my client books who went back six times
and has been delinquent for the past two years but nowhere near foreclosure yet Marty And so you know because all that government intervention and work out and so that all
finally running out, believe it or not, and will run out over the next 12 months.
And so that serious delinquency is going to go up. It will get a little bit of improvement.
We always do in the spring with like bonus payouts and tax refunds and things like that.
What'll be interesting to track is how much.
And because like for auto, it didn't help last year.
So we'll be watching all of that.
But what you are talking about.
So this is something the mortgage industry has no idea is going on.
It's called sub two are subject to mortgages.
And what these investors did is they would, when you're in default, the servicer has to record something called a notice of default or a list pendants saying that you're about to be a complaint will be filed against you.
So the investors will go research those and then they'll go contact you and they'll say, hey, listen, I got a deal for you.
I could take over your mortgage payments for you. If you sell me this house and I could maybe give
you an equity sweetener or you could rent from me for a little while. And this investor is trying
to find someone while they're doing all that, they're trying to find someone to buy the home
from them. What's happening now, initially these investors would record those deeds,
note becomes immediately due and owing. So what's happening now is these investors, as I knew they
would, because they always do, they walked away. And now the borrower is on the hook because they're
still on the note. And so foreclosure proceedings are going against them. They may not even be
living in the house anymore, Marty. But this is a huge kind of, it's part of that private note
shadow market that I was talking about. And I think this is one of the things that's kept
delinquency lower. But people can no longer, when home prices aren't appreciating, you cannot get a
buyer to come in and just, you know, pay ridiculous money for that house anymore. And so they're,
they're, you know, they're walking away. They can't make the payments.
So there's just a ton of stuff going on in this market.
And that's up to carry the investors are walking away because they don't have the cash
or are they just saying, Hey, this isn't worth it. And those things. Yeah. It's not worth,
it or they don't have the cash and then i mean for for the private credit specifically whether
it's hard money lenders these sub two investors and you get like commercial real estate it's got
to be again the fed calling it out yeah last month or the fomc it's becoming abundantly clear that
private credit is in trouble and we had what was a blue owl last night stop uh stop redemption
some of their retail oriented private equity funds.
It seems like all the cash that was printed and flushed into the economy in 2021, 2020,
it's not getting the return that those investors have everyone.
No.
And, you know, especially there's so much private credit and real estate, you know,
like 20 to 25% of loans and private credit.
I mean, commercial real estate or private credit loans.
And I mean, so, yeah, this is a dumpster fire and it's, you know, and I guarantee you that a lot of the people that are at these firms know how much trouble they're in, but they're not telling anybody, you know, it takes a long time as we can see.
I mean, Blackstone, for instance, is in a ton of trouble and, you know, and it's, but they can keep up appearances, but they're running out of time.
They're losing enough on the commercial real estate. They're losing enough on their single family rental business that I think we're going to start seeing impacts in Breit, for instance.
We'll hear about them gating redemptions again as well, probably in the near future.
That's been one of my sort of tinfoil hat theories with Trump announcing that these investors can't buy single family homes anymore.
And his $200 billion mortgage buying facility, I don't know if it officially launched, but he announced it.
They had already been doing it. They'd already been buying the MBS.
Yeah, particularly with the former, though. It's just a sly bailout. You're going to say they can't buy them.
Oh, it's a total bailout. Yeah, it's a bailout for them.
Because I was in the room with one of them in September and he's like, we've been chasing price for a year.
You know, they don't get a homestead exemption.
So their taxes are much higher.
Their insurance is higher.
And so they can't, they are, as soon as these long-term rentals, the leases expires, they're rehabbing them and selling them.
And which is why you're seeing price declines in places like San Antonio and Atlanta and Tampa, because you have very large institutional presences in those cities.
it's a bailout Marty
I mean that's I guarantee you
this is phase one oh you can't buy
these homes anymore phase two is like
hey you know we'll give you a deal
if you sell these homes
through one of our affordable housing
programs
well that's what I was saying maybe they have like
a BTFP
facility they're going to say hey we'll
just buy we'll buy these assets a par for you
100% I bet
we'll get there
Yeah. So where, where do you think the sort of rubber meets the road and this becomes obvious to the market?
Oh, I don't know. You know, the fact that we're in an election year, like, you know, I, I think that there is like, there's a, it's accumulating the awareness.
Like, you know, it's no longer just Florida and Texas. Like California is on the board. Like it is on the board.
you're starting to see a deceleration in the Midwest and Northeast on their home prices.
And I think pretty soon the Midwest will turn because they just, I mean, investors descended
on them because they were the last place you could get a decently priced single family home.
But I think it's going to take till the Northeast has some sort of awareness for there to be
national awareness. And the Northeast has a ton of problems around their demographics.
And, you know, those census updates are huge, showing everybody they didn't quite get the population game that they thought.
And, you know, the Northeast, very low owner occupancy, which means you got a lot of mom and pop investors, most of which are boomers who are aging out and will be.
I mean, what's really interesting, Marty, I'm seeing in the cities I track is that the rate of folks who are deceased property owners, like so you can track who's deceased is, I mean, in some cities up 25% year over year.
And so, you know, this is going, and Charles Schwab did a study and said 70% of the time, people who inherit property sell them.
And so all these things take a little bit of time.
It takes time to get through probate. But I think the demographics are going to really start to become obvious in places like the Northeast and Boston and actually Philly and Pittsburgh both have been showing price weakness.
And so, but I think until the Northeast falls, there probably won't be large scale awareness.
But with the price cuts I'm seeing, you know, once we can get activity in the market, we are definitely going to see that suddenly, you know, hit the gradually then suddenly.
But we could skate for another another selling season based on, you know, hopium and promises.
But I have a feeling we're going to see some disorder in this selling season, especially in places like Texas and California.
Do you think this is necessary?
Oh, yeah. I mean, yes.
I mean, if they'll let it happen, they're going to try everything.
but everything, there's just, there's a point where everything doesn't work anymore. You know,
like everything they've tried, like, like I love to talk about, they bought mortgage-backed
securities back, you know, in 2009 and, uh, you know, prices just kept plummeting. Um, and it
didn't do anything. Like it, it created a little refi boomlet in 2010. Um, but now we've got people
like the fed reported over 43% mortgage refi rejections. And so people can't even, uh, you
know, they can't qualify for a refinance. It's the highest in their series, you know? So it's just,
it's just a slow burn that is, it's gaining speed and gaining traction. But if we could get
transactions, we would see true price discovery. And yes, it's absolutely necessary because,
you know, household median income is not even in the same ballpark as, you know, median homes
prices. And so who's going to buy these? It's not going to be the institutionals. It's not going to
be your cohorts coming of age. I mean, the unemployment rate in the 18 to 24 is insane.
So we're not going to form households until the affordability problem is fixed. And so,
yeah, I think this is necessary. Yeah. Then you have the AI boom
happening, which is telling the Gen Z and Gen Alpha don't even try to get a job.
Right. As if their lives couldn't be more depressing, you know, like it's just it's kind of.
Yeah, it's really it's really not good for that cohort right now.
No. Well, you have the whole K-shaped economy meme becoming more prominent.
I think it's becoming more confirmed. It is.
Oh, yeah. It's not easy out there, particularly for the younger generations.
And again, going back to the demographics and push coming to shove with boomers aging out and
just factually dying out as well.
The flood of supply that just, if you're just looking at the math,
is due to hit the market is going to be pretty significant.
And this goes back, I mean, this is something I've always been curious about
with new home builds too, when you consider the quality of new builds
compared to older builds, particularly if they were built 50 years or longer ago.
They're actually sturdier.
The house that we're buying is very old, and I feel more comfortable in that than some of the new builds coming up.
And this whole supply meme that's been going out there, you have podcasters like the All In guys and the president in this administration saying,
we just need more supply to bring prices down.
I don't think that's the case.
And on top of that, the new supply is not a quality build at the end of the day.
No, because who was building it?
And, you know, it was subcontractors of subcontractors, but they were illegal immigrants.
That's who. And often I, you know, on these new build sites, Marty, it's it's it's it's a little scary.
Like you're you're seeing like we did one video where we just went around, got the Jack Daniels bottle, the Medela cases, empty cases, like the empty beer bottles that were just all over.
I think it was Lenar job site. And so, you know, the quality is horrendous. There just wasn't,
I mean, all these, uh, thousands of new home communities I went to, you didn't have, um,
these did not look like professionals building these homes and nor were they managed by
professionals on site. Yeah. So how much of like the lack of new home sales is being driven by
people looking at these being, I'm not buying this paper mache box. Right. And then,
I think that's part of it.
What is the exposure to these?
Yeah.
And not only that, they built luxury.
It's like, who are you building for?
Like, you know, I know in 21, we saw wages rise, but not like something crazy.
But that's what happened is all the builders went out there and built for the Californian and New Yorker that was coming to their town and built luxury apartments and all luxury homes like these gigantic.
Some of the spec homes I've seen out there just blow my mind.
like $13 million spec house, $25 million spec house, meaning they didn't have a buyer.
They just built that house. And it's like this massive luxury structure that you can go in all
the 85 markets I track and you can see this luxury sitting empty. There are not enough people to buy
those homes. And so I think you're going to have, there's going to be a lot of bulldozing when
people really finally start to deal with the problem. But we're far from that right now,
unfortunately like people people are still believing that it's an inventory shortage
the i mean we talked about this last time around but when i was in austin uh there was one of these
luxury builds around the corner from us we moved in 2021 we finished construction i believe in the
beginning of 2022 and we left june of last year was still sitting there up for sale yeah and and
what's crazy is a lot of these cities are still building them like phoenix i'm just like you
people are nuts. I mean, and, and they're everywhere and it's so weird. It's like these developers,
they never just drive around the town. They never just even go two blocks over. Like Nashville's
another good example. If you, if, and when you go back, like there's a attached to downtown,
it's just like apartment on top of a part. I mean, if all of those, if 50% of those apartments and
they're all new were filled, you would never be able to leave your house because the traffic would
be so bad, the congestion, because they just built all these things on top of one another with no
parking. And that's the really sad thing about a lot of this is that people just, you know, set new
builds down in cow pastures, wherever they could find, you know, they could build and they didn't
think about infrastructure. And so, you know, and I've seen some really sad small towns be destroyed
across the country due to like, okay, you're outside of Raleigh. Oh, that's going to be the
new Apple headquarters. Oh, no, not so much. Maybe not, you know, or whatever. So and so they went to
these little towns and just like destroyed them. They like bought up all these older homes and fixed
and flipped them or just, you know, put those new build communities. But there's no way to get in and
out of these towns. Like it's all, you know, two lane. It's just it's so it's so sad. Very high time
preference, describe it as the high velocity trash economy where you're just building to
build to hit your quarterly marks.
Absolutely.
What do you think the knock on effects of all this will be?
Well, we're going to see crime increase.
I mean, if that, I mean, that's, that's an effect because the vacancy out there is a
massive problem that nobody's talking about.
And, you know, it's only a matter of time when all the homeless in Austin figure out,
you know, 10 miles south, there's an empty new build that nobody's policing. It's like,
why don't we just go set up shop down there? You know, but I think you're seeing it already in
cities like Dallas, in the downtowns. They're, they're just, they're, they're terrifying.
I wrote a, an article for Unica's research last week, which was called Creepy is Not Cool,
because these downtowns are creepy. I mean, they're just creepy. You don't want to be in them,
which means they're never going to be able to get, you know, they're not going to be able to attract new business down there either.
And so I think you're going to have an increase in crime.
You know, we're already seeing an increase in homelessness.
And so. But later down the line, if you're not in debt and this is really important, don't get into stupid debt.
and you have a job, like you have a job, maybe you're a plumber, maybe you, you know, instead of
going to school, you went and did a trade, then you're going to be in a good position to get a
home. And so that, that's the, the long, you know, after a few years, that's the effect. And in some
of these markets, it'll be before then as well. But yeah, I mean, we're looking at, I think we're
going to be looking at a lot of municipalities like filing bankruptcy. And I think they'll
probably be begging for help from the federal government to deal with these vacant homes So and because a lot of these homes were bought with all cash during this last cycle which means they not sitting on a bank balance sheet which means you not
the grass isn't getting cut. The pipes aren't getting winterized, the molds not getting removed.
So that means all kinds of issues. I mean, I saw it when I managed to fault during
the last crisis. I mean, these homes get into the worst shape, um, and you almost can't even
recover them because, you know, they're just in such a state of disrepair.
Yeah. When you say downtown Dallas is great. Like, so what do you mean specifically? What
are some examples? So, so, uh, what's crazy about Dallas, uh, is they've got these massive,
um, you know, high rises, uh, commercial real estate completely empty. And on the back of it,
You see a stroller and evidence of homeless that have been living there.
And then right next door, they have this massive high rise that's being completed office building.
But if you walk in downtown Dallas, like it's just it's a ghost town.
It's a ghost town. And it's creepy because you're walking around it.
You know, you're seeing these what looks like homeless camps in downtown Dallas.
so uh you know that that's and but this is every i mean it's every like san antonio you know a very
similar situation i when i was in san antonio i saw somebody od right in front of us like we were
in a truck like filming downtown right next to us just od i mean it it feels as if most people
haven't been to their downtown in a very long time because they just are unaware with how how
creepy these places have become because they're just empty. They're empty, you know?
Do you think despite the positioning by this administration that everything's all good,
economy's hot, they understand these problems exist and they're just, I think you described
the saber rattling between President Trump and the Federal Reserve as K-Fob. Do you think
Similarly, the projection of everything is all well and great is K-Fob too, and they know things are not all well under the hood, and they're just trying to narrative craft until they can find an excuse to actually flood the system with more liquidity.
Yeah. So, you know, this is a question I just, I obsess over. I can't, you know, it's like they have to know some of it.
And if, you know, but I have a feeling they don't know all of it because I talk to people in government now and about their cities and say, did you know this?
Do you know that?
They don't know, you know, because that's what's happening now is I'm getting contacted by more policy focused people who want to talk to me about maybe solutions.
Finally, that's happening.
But they aren't aware of how much inventory they have.
And in places like Texas and in some unincorporated areas across the country, you didn't even have to file permits.
And so a lot of local leaders don't even know.
And so I think it's funny, like Pulte followed me for years before he got.
And, you know, he would share my stuff.
And all I ever do is talk about the inventory shortage myth.
myth. And, you know, but the day one into the administration, he, you know, sang a different
tune. And I actually know the CFO of Freddie, he was one of the last people standing because they
went in and gutted the executives at Freddie. I mean, he was my boss during the GFC for a certain
he has to know. I haven't spoken to him, but there are just so many clear telltale signs. If you are
in the know. And so it's weird in mortgage specifically, like people who originate the
loans never talk to people who service the loans. And so the originators never realize what's
happening on the back end. And so I think we're still in that part of the cycle where the
origination narrative is kind of driving the narrative. But in servicing, when I talk to the
big servicers, they know what's happening. So I think it's probably a combination of they know,
and, but they don't know the scale. But if, if, if it were me, um, and I would never do this,
I don't want to be a politician, but if, if I were a politician, I would, I would do probably
what they were doing. Like, just say whatever, like, what is it, you know, you're just, he's
speaking to whatever interest group in that moment. And, but you have to look at what the policy is.
And when they put those guardrails on FHA, um, that was a real action and that's going to have
real consequences. And they have to know that delinquency on FHA is unbelievable. And so there
have got to be people on that side of the house that understand that this is really, really bad.
Yeah. Is there anything similar going on to sort of just vanilla bank loans? I've been reading
Bill Moreland's bank reg data, and he was saying that they're just disguising sort of their
exposure to these delinquent loans by some sort of 12 month window that they're able to push it
off the balance sheet. And it looks like it's better than it actually is. Yeah. Yeah. And Fannie
and Freddie in an FHA hasn't done as much of this recently, but they do these things called
non-performing loan sales. And so they'll literally take their delinquent book and sell it and then
turn around to you and say, Hey, our delinquency is only 0.67%. Well, where'd those loans go? Okay.
Well, they went to private hedge funds who then turn around and sell it to individuals who don't report to credit.
And so, you know, like we just we just don't have a very clear view of what's really.
But yes, you know, I try to help people understand that.
what they did is instead of waiting for the crisis, they took the old loss mitigation programs
from the GFC and they put them on steroids and they took away all the requirements and things
you had to do because back then you had to virtually re-underwrite the loan. Well, they
said, you don't have to do that anymore. You don't even have to ask for their financials. I mean,
this is crazy, Marty. I mean, that's crazy. Like you don't even want to know if they can pay.
Like what? Like, why would you, it's all a game of extend and pretend. And so we've had,
if you think about it, we've had enough, like the same amount of workouts that we had after the last
cycle times about two or three. And that's what's kept us skating for this long. And now that stuff's
running out. So it's just like what Bill talks about. Yeah. And it's funny too. I've been talking
about extend and pretend. And I don't know if this went anywhere, but you're mentioning Bill Pulte,
the 50 year mortgage that was floated in December. What was your reaction to that?
Yeah. I didn't want to talk about it, but like literally everybody, I got so blown up. I mean,
my life went crazy for a couple of weeks, but I was just like, this is so stupid. I can't even
talk about it because, you know, by year 11, if anyone in this country like knew what an
emergenization schedule actually looked like, they would not borrow money. I mean, but we're
not taught that in school, but by year 11 of that loan, you will have paid $270,000 in interest.
That is what a median home price should be. Our median home prices should be around that 250 mark,
you know? And so that's, that's just nuts. That's nuts, you know? Um, and it's just debt slavery.
It's just another form of debt slavery. And, and believe it or not, they had them back during the
last crisis as well. Like some people do, you can do them in California. Um, and they're doing
what's called a 40 year modification right now. And it's not helping anybody because basically
your payment goes down by like $20 and then you add 10, 10 more years to your loan. I mean,
I just hope people understand, please don't do this. Like, just please.
It's just, you're going to be a slave forever.
Well, you see this extend and pretend not only the 50 year mortgage,
but I'm not sure if you caught Google wanted to issue a hundred year bond.
Yeah.
Yeah. Sorry. Yeah, I did.
To fund their, their data center expansion.
And people look at that like, Oh, look, long-term financing. It's like, no,
that's, we need to get suckers at the table to give us cash.
sure we can do this and push our exactly push our payments out a century it's just so nuts
some of the things you see going on right now just make your head hurt i mean you know but a lot of
it is just you know it's just a lot of delusion still well what are your thoughts on this data
center expansion and how does it affect it gets commercial real estate um yeah i mean industrial
is already, their vacancy is increasing. I mean, what I saw across the country was a lot of
new data centers for sale and for lease. And, you know, although I, you know, I forget how to say
his name, Torsten Slok or whatever from Apollo, like he has this chart out there that shows that
kind of data center construction peaked in 2023. So, I mean, Marty, I think we might be at a point
where it's already happened.
We're just not aware.
The slowdown is already happening,
even though they're all out there
talking about building data centers on the moon
and blah, blah, blah, blah.
I think that's just the,
somebody give us some money
for ridiculous idea kind of thing.
But I think that, so two things.
One, social media use peaked in 2022.
I think the numbers from OpenAI,
yeah, you know, they're going down. Like, I think, I think this is all peaked already. And we're just,
we're still dealing with, you know, kind of the delusion. And then the second thing that's
going on is, you know, the public is, they're pushing back on this massively.
All over the country, moratoriums, people showing up furious at city council meetings,
because their electricity bills are going up.
And this is, I mean, you know, DeSantis has gotten on this early
and then Bernie Sanders kind of got in and now the Democrats are,
this is going to be a huge midterm issue in my opinion.
And so I think we're not going to have all that construction.
I think that we're just still running through the, you know,
the mania mode right now.
But that in reality, I think they all know that that doesn't even make any sense.
We should be focused on, if we believe in this technology, we should be focused on how to scale it, you know, like how to get the kind of power that wouldn't just take down the entire grid or whatever.
But I have a conspiracy theory on this one that I actually believe a lot of what was written into the BBB is about fortifying the grid versus, you know, maybe construction.
I mean, construction for a private sector because I, you know, remember when they did that big infrastructure build during COVID?
Like, what happened?
Like, nothing, you know?
And it's like our grid is not in good shape.
And so I don't know if you saw the tweet by Trump before the storms that he was going to tap data centers for power to shore up the grid.
And so I think that some of this might actually be a way to sell infrastructure improvements wrapped in an AI mania narrative.
I actually wouldn't be mad at that.
Like, I think it's critically necessary.
We need energy generation, capacity expansion.
We need transmission expansion.
And to your point, the grid is not in a great spot right now.
It could certainly be better.
And we've seen this in Bitcoin.
I've been in Bitcoin mining for almost a decade now.
And that's one thing we do very well is demand response.
And so like in ERCOT, the TVA, where you are in mining operations that we're in certain price programs that we get where we get a good deal.
because when, and this happened three weeks ago
when the storm hit, when demand spikes,
we get asked to shut down.
We're able to send that electricity back
to residential consumers.
Yeah, that's kind of cool.
I mean, you know.
But that's specific to Bitcoin.
Right.
You can do that with Bitcoin miners
because Bitcoin's a distributed system.
And so shutting down mining operations in Tennessee
because it's cold doesn't disrupt the Bitcoin network.
It may slow down block production by a few seconds to a few minutes,
but that's not going to stop transactions from ultimately being processed.
And so you have a unique use case within Bitcoin mining
where you have this sort of responsive, controllable load
that can turn off in a moment's notice.
But when it comes to the AI, particularly if you're training models
in running inference, those operations can't be disrupted.
Bitcoin is called disruptible load that exists.
And so if we are going to build out these data centers
and this infrastructure, I think the Bitcoin mines need to be,
or the AI data centers need to be paired with Bitcoin mines
that provide that disruptible load to send electricity back to residents
when they need it, when demand spikes.
Right. Yeah.
I'm actually going to be doing a trip here soon to Stargate and a bunch of the different data centers in the south.
You know, because I want to see what's really going on there.
You know, we can't trust what we're being told.
That's what, you know, my conclusion.
And the way that I really understood what was happening in housing was I went out and looked.
And so that's what we're going to do is go look at some of these big sites and see.
You know, the ones in Memphis, I mean, that's going to be a very interesting case.
It looks, you know, they're getting sued.
So, you know, I just think there's going to be a ton of pushback on these.
I saw Ed Dowd tweet something funny that I actually believe in, that I think what they're doing is spurring this anti-technology movement.
Like people are saying, I mean, I don't want smart technology in my house.
I don't want to be woken up in the middle of the night when Amazon AWS goes down and my bed bolts me out of bed by raising up or suddenly it's 150 degrees in my bed.
And these are the types of things that we don't need that.
That's just stupid.
What does that do?
And then these appliances that they're all smart, they die in like two years.
The software dies, like whatever.
So there's no quality.
So I think actually what we're probably going to see is kind of the rise of a, you know, no more.
I don't want this stuff.
A bunch of Uncle Ted acolytes coming out of the woodwork to say, hey.
Right.
Yeah, it's I'm very big anti smart home guy.
But again, I've been using AI, TFTC to help just automate some stuff on the back end.
It's been extremely helpful.
But to your point, it's sort of threading the needle and figuring out what the appropriate tradeoffs are, like how to use this appropriately.
And then I'm sure you saw yesterday that sort of white hat hacker research group found out that the company doing KYC AML for open AI is just automatically piping all the information to the government.
You have this surveillance panopticon that is being erected behind the scenes alongside this AI technology.
And there's a right way and a wrong way to do everything, including AI and all layers of it from the energy to the data center discussion and the pushback against it.
We've learned this in Bitcoin mining, too.
And I think Bitcoin miners actually have it worse because the machines create so much noise you have to be very specific with where you plot these data centers down it should be like in rural areas where you not going to disrupt um residential neighborhoods because the sound too
loud or it's just ugly and eyesore right um i saw earlier this morning new brunswick i'm not sure
which state um the the citizens there were successfully able to convince their city council
to deny a data center construction.
But the point being,
it's like your straight-off
is the right way and the wrong way to do it.
I think AI is figuring that out.
BigQuery miners figured it out
beginning of 2020, 2021.
You've got to be very strategic
where you plop these down.
Absolutely.
Unfortunately, due to the state of the grid
and generation capacity,
your options are limited.
But I think we need to get to the base
of this industry, which is generation capacity and smartly plop down generation in areas where
it's not going to disrupt residential consumers. Yeah. I wish we were having conversations about
what we want this to be. You know, it just, it feels like it's so much hype. There's not really
any like, okay, what, what, what do we really want here? And, you know, the techno cultic
group. I can't, uh, you know, the technocracy, um, but I put cult in the middle of it. Uh,
you know, they have very things that I don't think any of us really know and understand as
their angles. Um, you know, like the, what is it? Vitalism movement or whatever.
Transhumanism. Yeah. Transhumanism. Um, we, you know, our biggest problem is that we die,
you know, these things and very Tower of Babel type stuff.
So we're not really sitting down and talking about what we want this to be, like the larger society, like the tech grows have a very specific idea.
And I just wish we'd have that conversation.
But I'm just going to give you a funny example for, you know, for people to like how much of this is narrative, how much is reality?
Like, you know, when that software route happened last week or a couple of weeks ago, time is just I don't even know anymore.
You know, it was because theoretically Anthropic came out with this legal and marketing service.
On the same day, I was talking to someone at a conference, a builder conference, where the attorneys are now making bank because they're suing people that used AI for contracts and they're incorrect.
And in fact, I was an expert witness on a case where the guy called me in to review.
He filed a complaint.
He used AI to file the complaint.
And I had to go to him and say, this is all patently false.
There's not a single iota of evidence of what you claim in this complaint.
Well, no, the letter said, and I'm like, bring up the letter.
What did the letter actually say?
And so there was this moment where his brain is just
You know, and he's told me, because I'm a skeptic.
I believe in certain aspects of the technology, but I think the hype is crazy.
And so he's like, you're wrong on AI.
This was two weeks before.
And then, you know, basically his entire case was, it was not a single fact was correct in the complaint.
So I just, you know, we're just not there yet.
And I say all the time, you can believe in the technology, not the hype.
But we're not being, we're not having real conversations about it, in my opinion.
And what I saw in corporate America is they don't have the gumption.
They don't have the stick to it.
It's like the, you know, perseverance to actually see any of this through.
They give up and they send it offshore.
They send it to India.
Like they just give up because it's hard work.
It's really hard work.
Yeah.
You have to, it's not out of the box.
Like some Jarvis like wizard that can do everything.
Right.
You have to know what you're doing.
You have to know what models do what specific tasks the best.
And then you have to check the work too.
Yeah.
You got to check it out.
Yeah.
Well, that's what, I mean, my biggest worry talking about tinfoil hat, like conspiracy,
like tying the Epstein files into this, I worry about like a Hegelian dialectic situation
being put forth where everybody's like, look, it's all corrupt.
The Epstein file is approving this.
We need a solution.
and then the transhumanist tech bros come in and be like AI.
And we get to minority report, you know, and that's the solution.
Everybody welcomes it with open arms because they point at the Epstein files
and say this is a poor in which obviously objectively it is,
but they get that's how you get the Antichrist.
Right.
The fake solution.
Yeah.
Yeah, no, I mean, I worry about that too.
And I worry that, you know, we are, the noise out there is so massive right now.
You know, it's just like dialogue, conspiracy.
And I don't mean like conspiracy, like that it's, I think we can all realize now that the
people that were called conspiracy theorists were just the ones paying attention, you know?
Right.
Yeah, exactly.
And so I, but just the amount of information we're getting, like the, I mean, it's just
Like it's it's there's a good theory out there for everybody right now to kind of keep them distracted.
And I honestly think that's to keep them distracted from what's going on in the economy.
Yeah. Sovereign individual predicted this in the 90s.
The noise to signal ratio is going to go so out of sync.
It's impossible to discern unless you have your facilities about you and your faculties about you and are able to actually take the time to filter the signal through the noise.
yeah what um bringing this back to housing before we get too far down the uh transhumanist techno
rabbit hole i mean the demo of this podcast is interesting it's a bunch of people older than me
our core demo is older than me um and so basically with what you're seeing
in the real estate market our demos is like older millennials gen x and boomers what would your
advice to them be particularly the older generations that are sitting on a bunch of real estate and
trying to think about what to do? I think you have to list it. I mean, just go ahead and list it.
And just, you know, if you think that you're going to be selling in the next couple of years
or want to sell, I think you should go ahead and get it listed because I think all of a sudden at
once you're going to be in the middle of a fire sale and, you know, it'll come later to certain
places and sooner to other places. And that's what I really try to talk about. But just list it
and get a more realistic expectation of what your house is probably worth. And to people that can
afford it, I say, go get an independent appraisal, not to do with any loan or anything like that,
but just pay for an actual independent appraisal. Because that Zestiman is lying to you. It's not
based in reality. It's not a, uh, a helpful comp, um, comparison. And so it's just, it's done a lot
of disservice for people, you know? Um, so if you have real estate, you're, you think you're going
to sell in the next, you know, two to five years, you may want to consider listing it or getting a
real appraisal. Um, and then, you know, I would say for those that want to buy, like, um, you know,
if you're aggressive, there are deals even now out there, but it takes homework. And I think that,
you know, during COVID, we all got used to, you know, not doing a lot of work for things. And so
you have to be aggressive. But yeah, you know, to me, what's going to happen here because of the
silver tsunami is housing is going to become boring again. And it's going to correct to a
point where it correlates to the median income, you know, and they've subsidized this market to
death. Like they have literally, you know, so people talk about, oh, what about this new bill
that just got passed? It's like, it's just more of the same. And most people could get $25,000
in assistance for down payment in their city, like all over the country already. And so they've
brought in everybody they can into the mortgage market. I mean, it's just dead. It's dead. Like,
rates went down massively last week, Marty. I mean, a week and a half ago,
purchase applications went down this week. I mean, refi went up, but not purchase. So
rates aren't going to do it. We are certainly not seeing rising wages. So really there's one
option out of this, you know, and that's home prices have to correct. And so if you're banking
on that equity for your retirement, you know, don't be the last one out of the door. Like it
just, you know, but if you're, this is your first home and you think you're going to be here for the
next 20 years and you don't have to worry as much about this kind of stuff, you know, you want to
have reserves on hand for sure in case you lose your job. But, you know, you've got a different
goal. Unfortunately, probably about 40% of the housing market though is speculation and their
goal is, you know, yield and rising home prices and cashing out that equity to keep the party
going. So. I mean, on that last note there, like how, how's the Airbnb economy, all those
Airbnb wizards who emerged in 2021 and 2022, are they tapped out? Have they fire sold yet? Or are
they still holding on? They're so a lot of them are fire selling. You know, it was funny as they
made a transition for a little while to like the whole narrative would be get out of real estate,
get into Bitcoin before, you know, we kind of saw that route in April or whatever. Um, but yeah,
so, uh, they're coming to market and like the, in some of the more crazy markets, like Severeville,
Tennessee, like you can see the distress is bad and they just built these homes that make no sense,
you know, for families of 15, you know, it's just not. And then places like San Diego,
you know, it's just a full on infestation. And so in Austin and all, so they're coming to market.
And I think they'll start, you know, as we can continue to see kind of persistent downturns
in travel and that kind of thing that that's just going to accelerate because these things aren't
making money and they're a headache. I mean, being a landlord is a headache. Um, and so,
and Airbnb doesn't care about you at all. Like they treat you like dirt. So they're, they're
coming and you're seeing these like motivated seller. And I mean, and you're just seeing crazy,
crazy homes that should have never been built come to market in these, in these, uh, in these
vacation spots. So. Yeah. I'm thinking of the Airbnb we stayed in when we visited Austin,
when we were looking for a house in 2021.
And I don't think you could ever sell that to somebody
who would actually want to live in that as their residential property.
Did it have a theme?
It did. It did.
My favorite is the bananas theme in Nashville, that property.
There's so many of them, though.
There's the Barbie castle.
I mean, there's so many themed Airbnbs.
I mean, it's just, I think it's all this is just an indictment of the federal government and the central banks, just pretty money.
Like you become deluded into believing that a banana themed Airbnb is a good idea.
Right.
Something sustainable as a business.
Right.
And I agree.
I totally agree.
And I just, what's crazy is, you know, the other thing though, I try to remind myself is when I just go out into the world and I interview people on the road or Uber driver, they are way more aware than a fin twit of what's going on.
And so I just kind of try to tell myself, OK, you know, we're dealing with a certain group, select group out there in financial media that is, you know, a lot of them are in the ivory tower of some sort and they don't really understand what's going on.
But regular Americans do.
Yeah. Yeah. In two years of like, oh, it was completely obvious.
I just didn't tell you about it.
Mm hmm. Oh, exactly.
Yeah.
We could have never seen this coming.
Okie dokie.
I mean, it's just math at the end of the day.
I mean, the problem is, you know, most of our data is corrupt, so we can't even get to the real math.
Yeah.
I mean, is there a fix to that or is it something we just had to deal with?
I don't.
I mean, surely, right?
Like, you know, this company, Placer AI, can tell you how many cell phones are in any one city at any time.
Are you telling me we can't really figure out how many houses we have in this country?
I mean, I just don't, I don't get that. And so, uh, so this, uh, a woman I met in Australia did a
really interesting study. She used the utilities. She used like the water company to really get true
inventory. Um, and I try, I've, I've gone to a couple of different water boards to try to do
that. And it's harder over here than I think over there. Um, but you know, it's just, we need real
data. But no, I think that we are in full,
they are just shoveling it right now, just shoveling it.
Like none of this is, is true, accurate at all. And so I hope there is a,
I mean, I hope that we,
I hope that more people start standing up and showing up at their city council
meetings and saying they're sick of this and that, and you know,
but it's going to be us having to take responsibility in my opinion.
Yeah. That's funny, too.
They just recognize this in Bitcoin, obviously focused heavily on CPI.
And I'm guilty of it.
I'll put my hand up. I'm guilty of it myself to a certain extent.
But like during Biden, you're looking at the inflation rates, you're like, oh, they're underreporting.
Yeah, because they're trying to mask inflation.
And now with Trump inflation rates coming down, everybody's like, look, look, it's working.
it's working it's like well if the metric was manipulated under the prior administration
what's to make you believe that it's not manipulated under this one right right what can you believe
what can we believe these days i think what you see you know um and even then like that's kind of
funny i remember after helene people would argue with me about something i'm reporting on that i'm
that was i saw it right in front of my face and they're telling me i didn't see that you know like
but I did, you know, and I have a picture of it, but it's still, so, I mean, I think that we're at
a point where it's just, um, it's what we can see and then sort of triangulate the data. I mean,
I think that that's what I really try to do is like, okay, this picture in front of us doesn't
make sense. So how can we put one together, like from the outside, like frame a picture of what's
actually happening. Um, and I think when you can do that, when you can kind of triangulate the data
and then you can verify it by what you see with your own eyes.
I think that's how we, you know, can sort of believe something's true.
Yeah.
Look out for the BTFP program for the private equity guys in their houses.
I think that'll be a, I think it's a sly route about bailout.
I 100%.
I think the same about the Trump homes.
That's a builder bailout right there.
Yeah.
I mean, they're going to buy them at a certain percent of, you know, immediate, like adjusted gross income.
Like they'll say, OK, you need this to come.
I'll buy it from you.
Twenty five percent less.
They'll put some price floor on it, actually, for these builders.
And that is a bailout.
But, you know, these things tend to once they get going, there's you know, they can try and stop them.
But the market force just takes over.
well we'll be observing we'll be watching we'll be reading your newsletter to follow along hopefully
um we can catch up on this at some point later this year absolutely it's gonna be an interesting
spring it really is melody thank you so much everybody make sure you go subscribe m3 underscore
melody on sub stack uh we'll link to that in the show notes and we'll uh we'll do this again at
some point later this year. Thank you so much, Marty. Thank you. Peace and love freaks.